Alibaba – Premiering Soon at CBOE

We don’t have to wait “One Thousand and One Nights” for the Alibaba IPO. We have seen several reports about Alibaba (BABA is the expected stock symbol) being priced on Thursday September 18th and shares trading Friday, September 19th. When all is finalized we will be back to confirm everything, but this is a good time to review the listing process for options at CBOE and other exchanges.

Assuming BABA has it’s IPO and tentatively begins trading shares of stock on Friday, September 19th, and assuming all goes well with the IPO, the process begins.

The exchanges and Options Clearing Corp (OCC) have a few items to verify before listing options. For example, the number of shares in float, the amount of stock traded (should reach that easily with the IPO), and a few other minor requirements.

On the 6th business day of stock trading (this would include Friday the 19th so the 6th business day would be Friday September 26th), if all the requirements are met, the CBOE (and other exchanges wishing to list options on BABA) would be expected to petition the OCC to add BABA options. The OCC would determine which Cycle (Jan-April, Feb-May or March-June), which strike prices would be listed and give approval to list options the following business day, Monday September 29th. This approval and listing procedure has been around for many years and has worked pretty smoothly.

Will there be BABA Weekly’s or LEAPS® options available? Maybe not right away, but if investors are looking for those products they could be added pretty quickly. Will there be 1-point strikes or 2.50 point strikes? I’m not sure, we will probably know by (a guess) September 17th.

So let’s see if the BABA IPO is priced September 18th as expected and how the first day of stock trading goes Friday the 19th. If it goes well, we anticipate Monday September 29th would probably be the first day to trade BABA options.

Mr. Kearney began his long association with the CBOE when he became an independent Market Maker in early 1981. Mr. Kearney traded options full time on the trading floor until 1992 and periodically thereafter until 1996. In early 1992 he became a founding partner and Registered Options Principal of a brokerage firm based in… read more

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